Separating the wheat from the gaffe

I received about 100 tweets today–all on the theme that gaffe-prone Mitt Romney said â€œcorporations are people, too,â€ thus proving what a corporate plutocrat Romney really is.

As it happens, Romney deserves harsh criticism for many of his actions and his policy views. Boiling things down to two words, he deserves criticism because he is a conservative Republican. So he should be called out for supporting regressive tax and spending measures, for his failure to speak out against tea Party brinksmanship on the debt ceiling, and a lot more. I certainly donâ€™t plan to vote for him.

I donâ€™t think he deserves specific criticism for what I see in this video clipâ€”or at least for the â€œcorporations are people, tooâ€ comment. In fact, Iâ€™m embarrassed by the rather rude, Tea Party level of decorum displayed by Romneyâ€™s hecklers.

It also gets pretty tiresome to follow along with the gotcha dynamics of modern campaign politics in which we make hay out of some political adversaryâ€™s comment pulled out of context. Romneyâ€™s statement can be made to sound like 19th-century conservative dogma, but it is actually more substantive and complicated than various funny tweets let on.

Politics is a contact sport. But letâ€™s wait for the opportunity for a clean hit and not irritate the refsâ€”er, the votersâ€”with a rather cheap shot.

You must know how simple-minded the average American is. And you must know that half of all Americans are even simpler-minded than that. That’s why bumper stickers were invented. You can, if you like, explain to people that Romney is technically correct (corporations are indeed associations of people) but that “average people” who own a couple of hundred shares of Apple or Exxon or GE are nuts to think they are part of those “associations”. Or you can take life as it comes, accept that electoral politics is based on pasting inconvenient bumper stickers on your opponents, and recognize that “Corporations Are People — signed Mitt Romney” is a pretty inconvenient bumper sticker.

I mean, seriously, Harold: if the American electorate could actually grasp nuance, would “I voted for the $87 billion before I voted against it” have sunk John Kerry? (Why that idiot did not say “I voted for the $87 billion before the Republican insisted it had to be borrowed money” is a mystery that will haunt me well into the after-life, of course.)

And what’s this prissiness about “hecklers”, I ask you? We need MORE heckling in our politics, not less. “Heckling” is talking back to politicians. I know our politicians are practically corporations now, and therefore have an inalienable right to expensive speech, but since when have we citizens been reduced to having only the right to listen to them respectfully?

That’s fair. But at the same time, he is – indeed – merely restating a baseline conservative principle: what is good for corporations (including their wealthy managers and shareholders), is good for us. Even when it isn’t.

I’m perfectly fine with attacking him on this, even though I’m well aware what point he was trying to make in context, because it’s clear from the rest of his and his party’s platforms and policies over the years that they believe that corporations deserve as much consideration for their interests as people themselves. Hell, it’s even a favorable comparison, because the evidence would suggest that they think corporations count for more than regular people.

It’s not even that bad a summation of the point he was trying to make (which is why he said it in the first place). He’s arguing that corporation’s and people’s interests are so indelibly intertwined that helping corporations necessarily helps people. He sincerely believes that. What he meant to say and what he did say are both false, and both false for basically the same reasons.

It’s not like he meant to say “Conversations are purple” and it was a slip of the tongue. It’s not like he was sarcastically mocking the idea, either. If the Republicans nominate Romney, and the Dems attack him so hard on this that the only thing the average low-information voter knows about Romney is that he once said “Corporations are people, too”, can you honestly say that the voters would be misinformed about Romney and the Republican Party’s beliefs? Someone who relied on that quote to predict Romney’s actions in office would make accurate predictions.

It is not necessarily true that half of all Americans are simpler-minded than the average American. More than half might be, or fewer than half might be. If enough people are extremely simple-minded, then they could bring the average down below the half-way point, so that fewer than half are simple-minded. And, if enough people are extremely complex-minded (that should be the opposite of “simple-minded,” shouldn’t it?), then they could raise the average to above the half-way point, so that more than half are simple-minded. I expect that someone mathematically trained could explain this better.

“Corporations are people”, in Mitt Romney’s sense, isn’t false. But it isn’t very true. It is, in essence, an assertion that intermediating institutions don’t matter–Margaret Thatcher’s “there is no such thing as society.” It is an extremely thin libertarian view of the world that doesn’t even account for public choice theory (which is a libertarian’s way of saying that intermediating institutions are significant.) It is an example of what Oakeshott, a distinguished conservative political theorist, calls “rationalism:” an attempt to recast the world on simple theory. (Oakeshott is recycled Burke, and Burke hated the French Revolution, which promulgated le loi Chapelier, which tried to outlaw intermediating institutions. So Romney isn’t even a good Burkean, with little platoons.)

I wouldn’t hold this against Romney as a piece of political fluff. But he seemed sincere. If he believes it, he is too naive to be President.

“Thatâ€™s fair. But at the same time, he is â€“ indeed â€“ merely restating a baseline conservative principle: what is good for corporations (including their wealthy managers and shareholders), is good for us. Even when it isnâ€™t.”

The tax on corporate earnings has the effect of shifting the tax burden away from wealthy individuals, not toward them. The reason of course is that taxes on corporate income are levied before the benefits of firm’s economic profits are distributed to the owners (either in the form of dividends or rising valuations).

Institional investors (university and non-profit organization endowments, insurance trusts, pension funds, etc.) hold over half of U.S. public equities and (likely) a far higher % of U.S. private equity. These institutional investors in turn use the proceeds of their holdings to benefit worthy charitable causes or to pay out pension and insurance benefits to predominently middle class households.

In a world where there was no corporate income tax, the value of U.S. companies would be higher, and this benefit would flow to both individual and institutional investors. Individual investors would pay income or capital gains taxes on the economic gains from this increase in valuations, while institutional investors either would not pay taxes (in the cases of non-profit organizations) or would pass along a mix of taxable and non-taxable income to the policyholders and retirees. But these individuals likely pay a lower marginal rate than wealthy individual investors.

For wealthy investors the corporate income tax is a good deal, since it means that for the given amount of tax revenue collected from corporations, more than half is effectively paid by institutional investors. If the corporate income tax were eliminated, and the revenue from corporate taxes collected instead by slightly raising individual income tax and capital gains tax rates, the burden would shift toward wealthy individual investors.

Eli, sd has a point, but let’s be clear what that point is: sd’s argument is in favor of shifting the federal tax burden off corporations and on to non-corporations, e.g. individuals. (I don’t care how low a fraction of GDP you, or sd, or I, want the federal government to collect in taxes; the total tax bill still has to be divvied up between corporations and individuals.) So the only question is: how would the (now-purely-individual) tax burden get divvied up amongst poor, average, rich, and stinking-rich individuals, if we reduce or abolish corporate taxation?

I can agree with sd that maybe, possibly, we should eliminate corporate taxation, and only tax individuals. I don’t think any other major nation has ever done such a thing, but what the hell do furriners know? I mention them because sd failed to include them in his discussion. The individuals who own “American” corporations are not exclusively Americans. Doesn’t a Saudi sheik own a 40% or so stake in NewsCorp, for instance? So what happens when NewsCorp stock appreciates as a result of reducing or eliminating corporate taxation in the US — i.e. shifting the American tax burden towards individuals? Does that Saudi sheik pay American cap gains tax as an individual when he sells his appreciated shares to a Russian timber baron through a Chinese broker in Hong Kong? I have no idea; I’m really asking.

Still, I could maybe, possibly, be persuaded to eliminate corporate taxation. I’d do it with this proviso: no “retained earnings”; every penny of gross profit gets distributed to the shareholders at year-end, and taxed as personal income to them — foreign shareholders included. If any shareholder chooses to re-invest his (after-tax) money back into the business, that’s fine; let the company issue additional shares for that purpose. This would put current shareholders and aspiring shareholders on an equal footing. I mean, if you work for a living, save up a bit of money, and aspire to invest it in shares of XYZcorp, you have to buy those shares with after-tax dollars. Why should somebody who already owns shares in XYZcorp effectively get the privilege of buying the appreciation on XYZcorp shares with pre-tax dollars?

BTW, changing the subject almost completely: whatever we think of the Citizen’s United ruling, most of us can agree that actual, living, flesh-and-blood persons should have the freedom of speech — even if they are shareholders in XYZcorp. Even if “the corporation” did NOT have the freedom of speech, the persons who are its shareholders still should. The 1st Amendment’s guarantee of freedom of association would still apply to them. They would be perfectly free to form a “shareholders of XYZcorp” PAC, if they had a mind to. Their 1st Amendment rights would not be diminished in any way, if the corporation did not have its own, separate, free-speech rights. What the Roberts Court essentially said is that “the corporation” has 1st Amendment rights in addition to the rights of the people who “are”, in Romney’s view, the corporation. To me, that’s like saying that “the corporation” can own property that does not belong to its shareholders. And to me, that sounds weird. But I’m no corporate lawyer, so what do I know?

thatâ€™s like saying that â€œthe corporationâ€ can own property that does not belong to its shareholders

That’s true, but is nothing to do with Citizens United; it’s fundamental to the concept of a corporation. (After all, the nice thing about being a shareholder is that, no matter how badly things go for your corporation, you can’t lose more than you’ve already invested. If the corporation’s property belonged to shareholders, its creditors could take it away from them!)

Let’s say you and I each own 50 shares of XYZ Inc, which has 100 shares outstanding. This does not mean that we each own half of the desks and chairs, half of the company car and half of the coffee machine in the conference room. XYZ owns all of those, free and clear. What you and I own is the right to receive our pro rata portion of (i) any dividend declared by XYZ’s board and (ii) the proceeds from selling off XYZ’s assets, if and and when it is wound up, to the extent anything remains after its creditors have been paid in full.

sd: “The tax on corporate earnings has the effect of shifting the tax burden away from wealthy individuals, not toward them. The reason of course is that taxes on corporate income are levied before the benefits of firmâ€™s economic profits are distributed to the owners (either in the form of dividends or rising valuations). ”

I could maybe, possibly, be persuaded to eliminate corporate taxation. Iâ€™d do it with this proviso: no â€œretained earningsâ€; every penny of gross profit gets distributed to the shareholders at year-end, and taxed as personal income to them

A close relative of this has been my proposal for years. Tax corporations on undistributed GAAP earnings, at the highest individual income rate. Distributed earnings (dividends) get taxed as income to the recipient, at whatever their tax rate is.

I could maybe, possibly, be persuaded to eliminate corporate taxation. Iâ€™d do it with this proviso: no â€œretained earningsâ€; every penny of gross profit gets distributed to the shareholders at year-end, and taxed as personal income to them

This is a terrible idea. Companies would be unable to engage in long term capital projects except by borrowing all of the money, or raising new equity, likely entirely at the beginning of the project. I understand what you are trying to do here: prevent the sort of cash accumulation we are seeing companies engage in at the moment. This is just a bad way to go about it. I even question whether this is a desirable goal. I think the cash accumulation is more effect than cause, reflecting lowered demand.

“I can agree with sd that maybe, possibly, we should eliminate corporate taxation, and only tax individuals. I donâ€™t think any other major nation has ever done such a thing, but what the hell do furriners know?”

Actually I believe that the US (along with Japan) has the highest corporate tax rates in the developed world. I don’t think any developed countries have taken corporate tax rates to zero, but in most of Europe corporate tax rates are substantially lower than in the US. In any event my understanding is that most economists (regardless of broader political affiliation) support zero or very low corporate tax rates, as corporate taxes distort corporate behavior in ways that are occasionally detrimental to the productivity-maximizing deployment of resources. In any event, Romney’s heckler (who seems to have initiated this tempest) is naive in extremis if he/she thinks that raising corporate taxes means that somehow revenue will be raised from “corporations” that will not be taken out of the pockets of owners, workers or customers of those corporations.

Your point about corporate taxes as a way to tax foreign holders of US equity is a good one, though holdings of US firms by foreigners are dwarfed by holdings of US firms by instiutional investors.

I think corporations are not just people, even in the way Harold Pollack states. And the difference is crucial.

They are organizations enmeshed within a set of rules that eliminates the complexity of human ethics from their actions. All that matters is share price and a CEO who allows other values to influence share price is soon punished through a take over. A new corporation with its original founder still exercising power can push back against pure market values, but once he or she is gone, the real owner and decider of a corporation steps in: the market process.

The difference between privately owned forms and corporations rests on the fact that a privately owned firm can reflect its ownerâ€™s values, good or bad, whereas a corporation reflects the marketâ€™s values, which are essentially purely instrumental and in a person would be considered sociopathic. Everything is a means to more profit, a barrier, or irrelevant.

Many human associations are far more able to reflect the complexity of values with which we live than a corporation. To simply call it an association is to ignore the systemic context within which it exists and why it exists.

As a man without apparent values Romney may well exemplify the human equivalent of a corporation, but most of us would cringe at being lumped in the same class.

The voters love cheap shots. That’s what works. We are not paying attention the way refs do (it’s not our job). We are the fans. In particular most of us have chosen our team. The refs are political reporters. It doesn’t matter if they are irritated. They don’t dare throw the flag (that would appear to show partisan bias unless they make sure the penalties cancel) and, besides, can’t impose penalties but can only try to influence the voters who don’t listen to them.

I think you have to decide between raising the level of debate and being in it to win it. Since you are not, in fact, in it, you are quite right to stick to trying to raise the level of debate (albeit good luck with that).

However, I think you shouldn’t fall for the pundit’s fallacy and say the approach you favor (considering the contexts of quotes and the incidence of the corporate income tax) will lead to electoral victory.

Gotcha works. That’s why they do it. You can and should argue that commentators shouldn’t act like political operatives, but don’t try to convince anyone that removing quotes from context will irritate the voters. There is massive overwhelming evidence on that issue and it is clear. Claiming Al Gore claimed he invented the internet worked, claiming Kerry flip flopped on Iraq when his statements from 1993 through 2003 could have come out of a tape recorder with equal flexibility and openness to new evidence worked http://bit.ly/rcHZHe. Attacking Kerry’s medals worked. Waiting for clean shots does not work. Here work means get the guy you want elected. The RBC isn’t playing that game (and shouldn’t) but it does not good to pretend that honesty is the best politics.

> a corporation reflects the marketâ€™s values,
> which are essentially purely instrumental
> and in a person would be considered sociopathic.
> Everything is a means to more profit, a barrier, or irrelevant.

Joel and Gus: Yes, it pays to remember that even if the productivity and profit sharing is good for shareholders, etc., it is still by definition removed from *externalized* costs. The degree to which the shareholders are removed from these externalized costs (sweatshops, worker rights, pollution, etc.) seems equivalent that they will indulge in them.
(note: check out British Corporate Manslaughter laws. Quite interesting)

It’s not just that shareholders are removed, the corporate system actively selects for sweatshops, abuse of workers, and pollution when that enhances share value. I would question whether on balance the corporate form benefits any ‘etc.’ but shareholders. Privately owned forms tend to be the most creative and innovative, only later being bought up by corporations, or becoming corporations to initially assist the original entrepreneur. Further, as I understand the evidence, the Mondragon cooperatives in Spain, now well over 50 years old with nearly 100,000 worker owners and 120 businesses, demonstrate that decent systems can compete with corporations. We have alternatives to sociopathic companies and the sociopathic humans that tend to get in the top positions.

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